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C. Starting Point: The Thompsons’ Settlement
of Proposed Deficiencies for 1979-1981
1. Respondent’s Position
Respondent’s characterization of the Thompsons’ settlement
of their 1979-1981 deficiencies, as set forth in a status report
dated May 28, 2003, has remained constant throughout the
proceedings on remand from Dixon V. Respondent maintains, “from
a substantive standpoint”, that the Thompsons’ settlement of
their 1979-1981 deficiencies “amounted to a 20% reduction of the
deficiencies”48 plus “payment of the Thompsons’ attorney’s fees
incurred with respect to the actual trial of the test cases
resulting in the opinion in Dixon v. Commissioner, T.C. Memo.
1991-614 (Dixon II).” In other words, respondent maintains that
the settlement fraction numerator--“the amount the Thompsons
actually paid under the settlement”--is $63,000 (the amount of
tax the Thompsons remitted to the IRS in June 1987). In
respondent’s view, the settlement should not reflect the
additional $33,000 reduction in tax plus the accompanying
interest reductions that generated the refunds of $30,000 in July
1989 and $32,250 in February 199349 that were signed over to
DeCastro, nor the interest refunds on the resulting overpayments
48More accurately, 20.55 percent (from $79,294 to $63,000).
49Respondent applied the remaining $750 to the Thompsons’
1988 tax year.
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